Is Gold and the OUNZ ETF Poised to End 2020 on a Positive Note?

As investors start to reposition their portfolios for 2021, one question on their minds is whether to add gold. With the recent weakness in the precious metal, it could present a prime buying opportunity that could see gold end 2020 on a positive note with interest in ETFs like the VanEck Merk Gold Trust (OUNZ).

OUNZ, which is up 22% year-to-date, seeks to provide investors with an opportunity to invest in gold through the shares and be able to take delivery of physical gold in exchange for those shares. The Trust’s secondary objective is for the shares to reflect the performance of the price of gold less the expenses of the Trust’s operations.

Each share represents a fractional undivided beneficial interest in the Trust’s net assets. The Trust’s assets consist principally of gold held on the Trust’s behalf in financial institutions for safekeeping.

OUNZ offers investors:

  • Deliverability: VanEck Merk Gold Trust holds gold bullion in the form of allocated London Bars. It differentiates itself by providing investors with the option to take physical delivery of gold bullion in exchange for their shares.
  • Convertibility: For the purpose of facilitating delivery, Merk has developed a proprietary process for the conversion of London Bars into gold coins and bars in denominations investors may desire.
  • Tax Efficiency: Taking delivery of gold is not a taxable event as investors merely take possession of what they already own: the gold.

OUNZ Chart

OUNZ data by YCharts

Need for Insurance Will Fuel Gold

The low rate environment fueled a corporate debt spree this year as the Federal Reserve stepped in to shore up the bond markets in early 2020. Furthermore, government spending via an additional stimulus bill is adding to the deficit.

What this all means is that a deluge of debt could cause more investors to pile into gold as a form of insurance in case defaults emerge in an uncertain 2021,

“There is a growing need for investors to hold more insurance as we continue to see uncontrolled government spending and deficit building,” said Peter Grosskopf, president, and CEO of Sprott Inc in a Kitco News article. “If we continue at the pace we are going; eventually there’s going to be some pretty dire consequences. It’s just a question of how much insurance you are going to need.”

In the meantime, the article mentioned that outflows have been occurring from gold-backed ETFs thus far in December. The article went on to say that “Although record holdings in gold-backed ETF present a significant risk to the market, Grosskopf said he doesn’t see a 2013 scenario.”

“The odds are high that people will want to add to their physical gold positions and that more money will flow into the ETF market because of the increasing need for insurance as the yields are artificially repressed for longer periods of time, and as people realize.”

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